Swedish boutique Tundra Fonder has issued an analysis of the ongoing political situation in Pakistan, following sharp falls in the local market.
The manager, which also provides up to date comments via its Facebook page (https://www.facebook.com/pages/Tundra-Fonder-AB/177848998939203) says in its most recent note on Pakistan that it expects further volatility on the local market, which fell 4.5% on 11 August against a backdrop of “increased political noise”.
It added that against the backdrop of an improving macroeconomic picture, political risk “now is the single largest hurdle for a continued revaluation of Pakistan equities.”
The most recent unrest stems from elections in May last year, which led to complains of rigging: this is to be expected following elections in the country, but such has been the volume of complains the local elections tribunals have only processed an estimated 73% of petitions in the year since, despite a statutory deadline of 120 days.
Now, the PTI party, the third largest party in Pakistan’s Parliament has scheduled a march on the capital, set for 14 August.
Tundra said that PTI is “well capable of bringing hundreds of thousands of people together in Islamabad.”
Generally, the parties involved are likely to find a solution that does not focus on violence, but it is the uncertainty around the outcome of the protests that has got the market spooked, Tundra suggests.
Short term risks include protests going out of control, leading to calls for the country’s armed forces to step in and take control.
Another longer term risk is that should the PTI party gain an advantage from the ongoing probes of particular constituencies and the election outcome, then it may push for more, leading to calls for new elections.
There is a risk of violence from the march called for 14 August, Tundra adds. Islamabad is a relatively small city of some 1 million people, meaning that a march of 100,000 or more will quickly fill up any available space set aside, the manager said.
Focussing on the investment opportunities, Tundra added that there is also opportunity in the current situation for foreign investors. Tundra does not believe the country’s democratic institutions will be weakened by the protests, and as such could lead to the market entering a relief rally.
“Combined with recent panic selling, high cash levels of local players and foreigners’ continued appetite the autumn could see a continuation of the revaluation of the equity market and renewed focus on the opportunities ahead.”
As a manager, Tundra offers single country funds focussed on Pakistan, Russia, and Vietnam, along with funds targeting frontier markets, Nigeria and sub-Saharan Africa, and a quants strategy targeting Asia.
Mattias Martinsson (pictured) runs the Pakistan fund from Stockholm, although the manager opened a Karachi office earlier in 2014, as well as making a number of local analyst appointments.